Dr. Philip Abradu Otoo, the Director of Research at the Bank of Ghana (BoG) has disclosed that the central bank is not surprised by the latest inflation figure, emphasizing that the bank’s own projection of inflation would peak in the first quarter of 2023.
According to him, Ghana’s inflation targeting framework is forward-looking. “Anytime we set interest rate, we don’t set interest rate based on previous inflation, but we set interest rate looking at inflation horizon over a year.” he stated.
The country’s inflation rate increased to 50.3% in November compared to the 40.4% which was recorded in October 2022. The new inflation figure was captured in the Consumer Price Index (CP1) data released on Wednesday December 14, by the Ghana Statistical Service (GSS).
“The inflation number we are seeing in November is expected. Given the level of depreciation we saw in October, inflation has just moved to 50.3%. You recall in our MPC press statement, we indicated that inflation will continue to rise.
“We expected inflation to peak somewhere in the first quarter of 2023 because we have factored in all these events.”
Dr Otoo
Dr Otoo further indicated that the current inflation is mostly driven by aggregate demand pressures in the economy, cost-push measures amongst others, revealing that inflation rate has been a difficult one for the central bank.
Factors Leading To Cedi Appreciation
The Director of Research at the Bank of Ghana gave reasons for the he development in the cedi’s fortunes after nearly 10 months of recording drastic depreciation which became a topic for discussion in the country.
Dr Otoo attributed the recent appreciation of the local currency to some measures put in place by the government, Central Bank of Ghana, as well as the newly announced International Monetary Fund (IMF) staff level agreement on the three-year extended credit facility. He noted that the reduction in imports and other measures are largely responsible for the appreciation of the cedi.
The local currency reduced by 53.8% in value against major currencies especially the dollar since the beginning of 2022. It moved from about GH¢6 to a dollar at the beginning of the year to GH¢15 to a dollar as of November 2022.
At the moment, the Ghanaian currency is selling at about GH¢ 9.30 to the dollar, according to data from the Bank of Ghana.
“We had a glimpse of our trade data for November. If you check the data it means there is huge compression in imports. Anytime there is an exchange rate overshoot like we saw, imports tend to go down.”
Dr Otoo
Dr Otto revealed that the cedi’s challenges meant that importers needed more cedis to get dollars in order to bring in products.
“They didn’t have that. It takes time for them to be able to marshal resources to import. If you compare the data from where we were as of November last year, that import bill has gone down by as much as $400 million. So this is potential demand which hitherto would have come to the doorstep of the central bank for financing.
“It’s gone down significantly. So it’s an evolution of things that have happened. That demand going down is good for the cedi because we will not have agents coming in to demand that amount for imports.”
Dr Otoo
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